Price Pressure Research Articles

Republic of Kazakhstan: 2021 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Kazakhstan

Activity returned to its pre-COVID level in 2021. Inflation remains well above the NBK’s 4–6 percent target band, and spillovers from sanctions on Russia will exacerbate price pressures and weaken economic growth in 2022. Kazakhstan benefits from strong fiscal and external buffers but risks to the outlook are elevated due to the uncertain impact on Kazakhstan of the sanctions on Russia and heightened domestic tensions since the January social unrest episode. In the medium term, non-oil growth under the baseline is expected to converge to about 4 percent. Sustainable growth will require greater economic diversification. Climate-related challenges are acute for Kazakhstan given its outsized hydrocarbon sector, high per-capita greenhouse gas emissions, and low domestic energy prices.

The potential risk to public safety posed by the economic regulation of gas infrastructure

Studies into the causes of major disasters have emphasized the extent to which cost cutting by senior management has contributed to the potential for accidents in the medium to long-term. Setting budgets for safety expenditure is considered an internal company matter with the required spending level meeting, at a minimum, regulatory requirements for safety. For companies also subject to pricing regulation (such as monopoly natural gas suppliers), economic regulation—seeking to emulate the price pressures of competition— requires that all expenditure, even that related to safety, must be deemed as ‘efficient’.Drawing on 49 stakeholder interviews, document review and case studies, this research—focusing on the Australian gas transmission pipeline and distribution network (infrastructure) sector—considers the extent to which economic regulation influences safety expenditure and thus potential long-term public safety outcomes. The economic regulatory submission, prepared by regulated gas companies, can be conceived as a boundary object that mediates the social worlds of the economic regulator and the regulated company. Such a conceptualization reveals differing orientations towards safety expenditure and what this means for the public good. We argue the Australian economic regulatory framework, as currently enacted for the natural gas sector, is significant for the management of public safety risk. We conclude that minimizing risk to the public from a major gas transmission pipeline or distribution network failure would be better served by the economic regulatory regime considering safety-related expenditure separately from all other expenditure categories, and that consideration should be informed by the technical safety regulator’s view. The findings of this research will be of interest to jurisdictions around the world where economic and safety regulatory regimes intersect.

Success Determinants of Open Innovation Partnerships between Car Manufacturers and Start-Ups in Germany

In a context of saturated markets, increasing price pressure, growing competition, changing preferences and consumption patterns, the automotive industry is evolving into a diversified mobility industry. This disruptive transformation challenges German car manufacturers to reinvent themselves and innovate in diverse directions. Since loose open-innovation (OI) partnerships with start-ups offer manufacturers not only flexibility but, more importantly, cutting-edge expertise from outside the traditional industry, they have become the partner of choice since 2010. Although incumbent-start-up partnerships are on the rise, the current literature scarcely addresses the challenges that arise from innovation cooperation with such disparate partners. Therefore, this study attempts to identify the success determinants to provide practitioners with guidance and contribute to close current gaps in literature. Based on a qualitative research design, in form of semi-structured expert interviews, key barriers and drivers concerning leadership, work methods, culture and intellectual property were identified. Considering the start-up´s, the incumbent´s and the interface´s perspectives, the paper provides a conceptual framework that illustrates the interrelations and challenges in open innovation partnerships. The start-up´s group expertise and maturity turned out to be a major driver for initiating collaboration. The key collaborative success drivers are agile work methods, the group´s internal cultural transformation, the interface´s autonomy, and a solid level of trust and openness between the involved parties. Besides practical recommendations, derived by the identified success factors, the paper constitutes a theoretical basis for further research.

IPO Performance: A Cross-Country Comparison of the Effect of Regulations

We compare short-term returns around IPOs, as well as longer-term returns and post-issue performance, between US and China IPOs. Short-term abnormal returns are higher for China IPOs than US IPOs, both in univariate tests (difference of means and medians tests), and in multivariate tests, controlling for other variables and fixed effects. We postulate that this is due to the different regulations between the two countries that could lead to more underpricing and constraints on reaching true value, in the short run, for China IPOs. However, the upward price pressure leading to superior stock returns does not last. In the longer-term, not only do China and US IPO firms have similar abnormal stock returns – on average negative as documented in the extant literature - but also the firms’ operating performance, on average, as well as their book-to-market ratios (a proxy for future growth options) are not significantly different, in both univariate and multivariate tests.

Characteristics of Clinical Trials Evaluating Biosimilars in the Treatment of Cancer

Biologics account for almost half of US drug spending but may be subject to competitive pricing pressures by US Food and Drug Administration-approved biosimilars. The extent of the preapproval clinical testing that is needed and how these biosimilars compare with the originator biologic products remain critical issues in establishing a vibrant biosimilar market. To analyze the design of cancer biosimilar efficacy studies compared with the reference drug pivotal trials and provide summary risk ratio estimates for each cancer type drug subgroup. A systematic search was performed of articles and abstracts published using Embase, PubMed/MEDLINE, and ClinicalTrials.gov, last updated April 18, 2021. All studies or abstracts in English comparing a disease-modifying cancer biologic and its biosimilar and reporting efficacy or surrogate efficacy results were included. Outcome estimates and study characteristics were extracted from each study. Among biosimilar efficacy studies, random-effects meta-analyses were performed for each cancer type molecule outcome subgroup, calculating pooled relative estimates and 95% CIs. Study characteristics, such as population size, blinding, and randomization, were compared between biosimilar trials and those of reference drugs. Risk ratio estimates for relative change to surrogate measures (eg, progression-free survival) were collected for biosimilars and their reference products. A total of 31 cancer biosimilar studies of 3 reference products involving 12 310 patients were included. In all 7 subgroups, the biosimilars analyzed were indistinguishable from their reference drug on surrogate efficacy. Six reference drug trials were included, involving 1811 patients. On average, biosimilar studies involved more patients than reference drug trials (mean number of patients, 397 vs 302), were more likely to be randomized clinical trials rather than single-group or observational studies (100% [31 of 31] vs 50% [3 of 6]), and were more likely to be double blind rather than open label (84% [26 of 31] vs 17% [1 of 6]). This systematic review and meta-analysis found that the biosimilars for the cancer drugs in this sample were subjected to rigorous clinical evaluations, and the results were statistically indistinguishable from those of original products across drugs, cancer types, and outcome measures.

Euro Area Policies: 2021 Article IV Consultation with Member Countries on Common Euro Area Policies-Press Release; Staff Report; and Statement by the Executive Director for Member Countries

Following a deep recession in 2020 and further contraction in 2021Q1, the euro area economy recovered rapidly in the second and third quarters thanks to high vaccination levels, increasing household and business adaptability to the virus, and continued forceful policy support. Looking ahead, while supply chain disruptions, elevated energy prices, and resurgences of Covid-19 cases—including those related to the Omicron variant—are likely to pose near-term headwinds to growth, the recovery is set to continue in 2022 as the impact of the pandemic on economic activity continues to weaken over time and supply-side constraints ease. Medium-term output losses relative to pre-crisis trends will vary significantly across countries and sectors as will the extent of labor market scarring. Price pressures are building up as production bottlenecks are set to persist for a while. However, inflation—despite increasing significantly in recent months due to transitory factors—is projected to moderate during 2022 and remain below the ECB’s inflation target over the medium term. Uncertainty surrounding the outlook remains high and largely related to pandemic dynamics and legacies, including induced behavioral and preference changes.

Guest Editorial: Will the Omicron Variant Lead to the Collapse of Oil Prices?

With the Omicron variant continuing to spread around the world, will a drop in oil prices follow? Maybe, but probably only in the short term. Equity markets tanked Friday, 26 November 2021, on fears that the Omicron variant, first identified in South Africa, would sharply impact worldwide economic output. The nearly 1,000-point loss in the Dow wiped nearly $90 billion of value in Dow equities. Oil prices were particularly hit hard, dropping nearly 10% from Thursday’s close. That drop, however, was minor compared to what happened to prices in early 2020, when at the end of April oil prices had dropped nearly 70% in value. This was frightening and was a combined pessimistic response to fears of demand destruction due to the coronavirus and the price war initiated by OPEC and Russia to counter rising production from US shale oil producers. As a world economy, we had not faced a major health crisis since 2014 when Ebola fears gripped the world and in 2009 when H1N1 flu sickened 60.8 million and killed 12,469 in the US, according to the US Centers for Disease Control and Prevention (CDC). If we go back to the 1918 Spanish flu, Fig. 1 shows the gross US demographic impact of these pandemics. The 1918 Spanish flu infected about 28% of the US population but did not impact oil prices to any great degree. COVID-19 has infected about 15% of our fellow citizens but has caused nearly 125,000 more deaths because our population is about three times larger than it was in 1918. In our current COVID-19 pandemic, images of first responders desperately improvising to save lives, stories of grief-stricken children, and partners forced to provide remote comfort to isolated and suffering elders tested our confidence that there would ever be a “normal” American life in the future. How Did Oil Markets React? The pre-COVID price of oil (CLF) in late 2019 dropped by 73% to its low in April 2020. Fears of demand destruction due to COVID dropped the price from $63/bbl to around $40/bbl—a 36% drop (Fig. 2). Price pressure was further exacerbated by OPEC’s price war with Russia, with OPEC increasing its output by a factor of four during a short window going into and lasting through April 2020. This dropped the price of oil another 40–50%. Once OPEC ended its price war, the baseline price of oil was around $40/bbl. When Moderna and Pfizer announced their vaccines, and the CDC authorized their emergency use, prices recovered until late July 2021 when the US entered its third wave of increasing case counts and rising death counts.

The Dynamic Relationship between Investor Attention and Stock Market Volatility: International Evidence

This paper investigates the role of investor attention in forecasting realized volatility for fourteen international stock markets, by means of Google Trends data, over the sample period January 2004 through November 2021. We devise an augmented Empirical Similarity model that combines three volatility components, defined over different time horizons, using the similarity measure between lagged Google search queries and volatility. Results show that investor attention positively affects future volatility in the short-run. The effect of investor attention is likely to reverse in the long-run, consistently with the price pressure hypothesis. The proposed model demonstrates important gains in terms of volatility forecast accuracy and outperforms highly competitive models.

What drives intraday reversal? illiquidity or liquidity oversupply?

Previous studies of the U.S. market regard short-term reversal as compensation for liquidity provision. However, we find that intraday reversal has no significant dependence on stock liquidity in the Chinese market. Hence, based on a stylized framework, we propose an alternative explanation: irrational uninformed liquidity providers, who underestimate the information component in the equilibrium price due to physiological anchoring, trade against previous price movement, which generates an opposing price pressure. The empirical results confirm this explanation of liquidity oversupply (from irrational uninformed liquidity providers). The negative correlation between previous intraday returns and future returns in the Chinese market is reversed once we extend the holding period. This indicates that reversal is a pricing error due to excessive liquidity provision from uninformed retail traders instead of a price correction from a temporary price concession due to a lack of liquidity.

Keeping the competition close: The impact of competitor distance in the lodging industry

AbstractThis study applies a distance‐based measurement outlining market boundaries for competition in the lodging industry and investigates the effects of competition across a range of distances. Predetermined administrative boundaries have been the conventional metric used when estimating competition effects in a given geographical area in the lodging industry. For this study, distances are calculated using the location information of 45,623 hotels in the United States extracted from the Smith Travel Research Hotel Census. Our findings suggest a U‐shaped relationship: hotel room prices fall as relative distance increases, due to increasing negative price pressure, until a threshold distance is reached (a radius of 20 km), after which price pressure falls and prices begin to increase. These research findings have implications for hotel managers with respect to competitor management and for hotel investors interested in locating and developing future accommodation establishments.

Is Risk-Neutral Skewness an Indicator of Downside Risk? Evidence from Tail Risk Taking of Hedge Funds

Research suggests that systematic tail risk affects the cross-sectional variation in hedge fund returns. High tail risk hedge funds are known to be exposed to higher-moment risks; they sell market volatility risk and buy market skewness risk. The relationship between a tail risk strategy and a market skewness factor is expected to be positive, but I find it to be negative. Using equity-oriented hedge fund return data, I find that equity market skewness risk explains a major part of variation in hedge funds’ tail risk. My results suggest that the observed negative relationship relates to the problem of price pressure associated with “crowded trades” of mutual funds. In particular, in times when investors shift their funds from bond to equity mutual funds, short selling in the index options market induces a negative relationship between risk-neutral market skewness and returns. Accordingly, the long leg of the tail risk strategy appears to be negatively exposed to market skewness risk, which is in contrast to the usual interpretation of option-implied skewness as an indicator of downside risk.

Price Pressure and Corporate Bond Underpricing: Evidence from Newly-issued and Tack-on Offerings

Price Pressure and Corporate Bond Underpricing: Evidence from Newly-issued and Tack-on Offerings

Bundle selection approaches for collaborative practical-oriented Pickup and Delivery Problems

Due to the increasing price pressure in the less-than-truckload (LTL) market, horizontal cooperation is an effective and efficient way for small- and medium-sized LTL carriers to enhance their profits by exchanging requests. For this purpose, a decentralized auction-based collaboration framework has proven to provide a good approach. In this paper, such a collaboration framework is adopted and extended by applying it to a practical-oriented routing problem, the Pickup and Delivery Problem with Time Windows and Heterogeneous Vehicle Fleets. Particularly, we analyse the bundle selection process made by the auctioneers, which is a stochastic problem and specify which requests are supposed to be offered together in a bundle to the cooperating carriers. For the purpose of solving the selection problem properly, we implement a new procedure required due to the characteristics of the considered routing problem: a scenario-based bundle selection approach. In order to make this approach applicable, two pre-selection techniques (cluster- and neural network-based) are developed. Our approach is evaluated on 240 collaboration network instances created from well-known pickup and delivery research data sets generated by Li and Lim (2001). The collaboration framework results are compared with respect to the profit to individual transportation planning of each carrier (lower threshold) as well as centralized transportation planning of all carriers (upper threshold). It can be shown that the auction-based collaboration approach is up to 43.49% better than the individual planning as well as exhausts at least 53.5% of the centralized transportation planning potential on average. • Applying a Rich Pickup and Delivery Problem on an auction-based exchange mechanism • Developing scenario-based approach for auctioneer’s Bundle Selection Problem (BuSP) • Combining BuSP solution approach with ML techniques for bundle preselection • Combining the exchange mechanism with Double Auction and novel profit allocation

МІЖНАРОДНА КООРДИНАЦІЯ МАКРОПРУДЕНЦІЙНОЇ ПОЛІТИКИ ЯК ІНСТРУМЕНТ ФІНАНСОВОЇ ІНТЕГРАЦІЇ

The article provides a comprehensive analysis of the problem of international macroprudential regulation from the standpoint of benefits and threats produced for national economies in the process of its implementation. It has been established that the macroeconomic situation in each individual country is increasingly being influenced by forces that go beyond both traditional cycle theories and the conventional understanding of non-economic factors. As a result, long-term macroeconomic stability, the key to which is the stability of the national financial and, above all, the banking system, to external shocks, is called into question, and the main way to ensure it is to conduct a risk-weighted macroprudential policy. Capital inflows driven by changes in financial regulations in the country of origin of capital could lead to excessive credit growth and asset price pressures in capital recipient countries, which could be partly mitigated by regulatory and macroeconomic policies in those countries. Conversely, effective domestic macroprudential policies that help contain systemic risks in one country can contribute to financial stability in other countries by generating positive externalities. Reducing the likelihood of a financial crisis in one country through timely macroprudential policies can reduce the scale of negative trade and financial spillovers or spillovers at the regional or international level. Based on the assumption that, when policymaking is inconsistent, each country's regulator is free to choose policy instruments to minimize its own political losses or maximize public welfare, assuming that regulators in other countries can make similar arbitrary choices of macroprudential instruments as a given, it has been found that such policy, generally does not take full account of cross-border spillovers, that is, the real and financial externalities caused by domestic shocks, or the consequences of national policy responses to those shocks. The article determines that, theoretically, international coordination of macroprudential policies can achieve a reduction in political losses or contribute to an increase in public welfare. Both domestic macroprudential policies and prudential capital controls produce spillover effects internationally, which can lead to “capital wars” based on races to lower interest rates. Keywords: macroprudential policy, international economic policy, international capital flows, financial integration, international policy coordination, global instability, regulatory wars.

Who Pays Attention to SEC Form 8-K?

ABSTRACT The SEC requires public companies to disclose material information on Form 8-K within four days of a triggering event. We show that on 8-K event and filing dates, there is significant abnormal attention on Bloomberg terminals, which are a source of information for institutional investors, while traditional media attention tends to be higher on filing days. Significant price discovery occurs on the event date and on the days between that day and the filing date. The traditional media coverage on the filing day appears to attract the attention of retail investors and leads to further price changes in the direction of the pre-filing day price change. Institutional investors exploit this price pressure via opportunistic liquidity provision. Overall, our evidence suggests that the Form 8-K filing may have little direct informational benefit, particularly to retail investors. JEL Classifications: D8; G1; G2; M4.

Short- and long-term effects of responsible investment growth on equity returns

PurposeThe growth of socially responsible assets has been exponential over the last decade, they now account for almost a third of professional investments. As the growth persists, faith and conviction investors reshape the equity markets. To fully comprehend the impact of socially conscious participants on security returns, this paper attempts to provide insights on how responsible investment growth has impacted the returns of sustainable stocks. The examination is split by investment horizon to account for short and long effects.Design/methodology/approachUsing an exclusive dataset of non-financial ratings, provided by MSCI ESG research, the authors examine the cross-sectional returns of US and European sustainability-leading and lagging corporations between 2007 and 2019. Panel models robust to country, firm-year and industry effects were then employed to examine the impact of responsible investment growth on future stock returns.FindingsThe authors find evidence that the impact of responsible investment growth is dual contingent upon the timeframe considered. In the short run, sustainability-leading and lagging firms display similar stock returns. However, the spread in returns is negative over long horizons and increasing over time.Originality/valueThe examination performed in this study highlights the significant effect of responsible investment growth on future stock returns. Overall, the authors’ findings are consistent with the price pressure hypothesis in the short run and the cost of capital alteration over longer horizons.

Using eye‐movements to assess underlying factors in online purchasing behaviors

AbstractThe field of consumer neuroscience allows researchers to account for an individual’s explicit reported behaviors as well as their implicit behaviors that are reflected in the neural mechanisms that occur during the purchase decision phase of a consumer’s online shopping experience. The purpose of the current study was to use eye‐tracking technology in conjunction with self‐report purchase intention data to observe the relative impact of star rating, price, discount, and time pressure on purchase decisions. The results suggest that purchase intention was most affected by star rating, price, and discount with higher purchase intentions on items with higher star ratings, lower prices, and greater discounts. The eye movement data revealed that these factors, as well as time pressure, influenced where consumers directed their attention in making their purchasing decisions. These findings have significant implications for future ecommerce marketing strategy, especially across efforts to increase purchase intention.

Investor Attention and Stock Returns

AbstractWe propose an investor attention index based on proxies in the literature and find that it predicts the stock market risk premium significantly, both in sample and out of sample, whereas every proxy individually has little predictive power. The index is extracted using partial least squares, but the results are similar by the scaled principal component analysis. Moreover, the index can deliver sizable economic gains for mean-variance investors in asset allocation. The predictive power of the investor attention index stems primarily from the reversal of temporary price pressure and from the stronger forecasting ability for high-variance stocks.

An alternative behavioral explanation for the MAX effect

Stocks with high maximum daily returns (MAX) in a given month yield low returns in the subsequent month. We thoroughly examine the underlying behavioral mechanism based on stock market and individual trading data. We argue that the short-term return predictability is driven by investor overreaction rather than cumulative prospect theory (CPT) preferences. First, we show empirically that high-MAX stocks are comparably not more attractive for CPT-investors. Second, we observe immediate price reversals and no preference-induced price pressure following the MAX return. Third, in line with theories on information-dependent over- and underreaction, the MAX effect reverses if MAX is caused by earnings announcements. Fourth, the MAX effect only exists for stocks far away from an anchoring point as overreaction is mitigated by anchors. Further, discount brokerage data shows that retail investors’ speculative buying pressure for lottery-like stocks cannot explain the specific return patterns associated with the MAX effect.

Merger simulation based on survey–generated diversion ratios

ABSTRACT This research modifies the well-known three-stage merger simulation procedure of Nevo by replacing demand analysis in the first stage with survey-generated diversion ratios and own-price elasticities. We also provide a post-merger price formula under the scenario of two firms competing in the same relevant market and operating independently of the other firms in the relevant market. The same scenario is considered in upward pricing pressure (UPP) and is commonly observed in most filing cases for mergers. Since the formula is exact and requires only data on each firm's price and own-price elasticity and the diversion ratios between these two firms, our approach's implementation cost is almost identical to that used in the critical loss analysis, the diversion ratio, and UPP. The formula thus is informative and convenient for competition enforcement when dealing with merger cases.